“Technology is not a substitute for ethics,” said distinguished professor Nirvikar Singh at The Quants of Wall Street: Risk and the Ethics of New Financial Technologies, an event hosted by the Center for Analytical Finance and the Science and Justice Research Center.
The event featured representatives from across industry, academia and the nonprofit sector to address critical questions about who benefits and who loses in today’s financial markets.
The line up included UCSC alumna Sherry Paul (philosophy, Cowell, ’91) who is now a wealth adviser, Daniel Friedman, a Distinguished Professor in Economics and author of Morals and Markets, and Anne Price from of the Closing the Racial Wealth Gap Initiative. Joe Klett, a visiting professor in the Sociology Department co-moderated with Singh, and Jenny Reardon, director of the Science and Justice Research Center offered introductory and closing remarks.
New technologies, new opportunities
Financial markets are being disrupted, thanks to new technologies like the alternative currency Bitcoin, algorithmic driven “robo” advisers, and superfast data centers.
Some argue that these digital services are democratizing financial markets. After all, anyone with an internet connection can trade online for $5.
But access cannot be equated with democratization, was the resounding consensus with panelists.
For example, what happens when that internet connection is faster than others, asked Friedman. Friedman’s current research focus is on the problems of high frequency trading. The first to get their trading orders in profit. Under the current market formats, traders compete on speed not price, he pointed out in his discussion about the bad, and the ugly behavior in the market.
It is an arms race for speed, he argued. It is costing tens of billions of dollars that ultimately is paid for by pensioners and ordinary investors.
“Getting the rules right is essential,” added Friedman, who is looking to fix the problem through better trading regulation.
“Tax bad behavior, don’t subsidize it,” he suggested.
The great robo-robbery
Technology is designed by people, with selfish outcomes often resulting, Paul warned.
Technology is being built without regulation, Paul observed. She called this a major blind spot for regulators. For example, robo-advisers, the automated investment services, are just another aggregator of wealth.
Paul called it the “great robo robbery.”
Paul also pointed out that technologies are not only built by people, but are still controlled by them. In other words, there is someone behind the curtain.
Importance of historical structures and discourse
“Access to markets is not good enough when so much inequality is built up,” emphasized Price, who urged the audience to situate race and place in the discourse.
To better understand current financial markets, historical structures and discourse must be addressed.
“If we don’t deal with the structures, we aren’t going to get anywhere,” argued Price.
“We have to talk about the economy differently,” said Price, who pointed out that the English language is embedded with meaning we don’t realize. Price draws on cognitive science to better understand how financial markets are communicated in contemporary culture.
For example, expressions such as “economic climate” imply a natural order to the market, when it is anything but. Myths surrounding poverty are perpetuated with discussions about a “bootstrap mentality” with workers who serve as the “backbone of the economy.”
Meritocracy will not close the wealth gap, Price argued.
“Wealth is the ability to have decisions, choices, and live out who you want to be. That’s what wealth is,” said Price.
Additional co-sponsors of the event were The Blum Center on Poverty, Social Enterprise and Participatory Governance, the Center for Labor Studies, Cowell College, Rethinking Capitalism, and the Sociology Department.